Asset Management

1. weak form

2. semi-strong form

3. strong form

- all information on past price behavior is fully reflected in share prices

- techn. analysis is useless

- if every AM would be successful

- all publicly available information is fully reflected in the current price

- fundamental analysis is useless

- if a few AM would be successful

- all available information is fully reflected in the current price

- prices follow a random walk and not even insiders can predict share price development

- if none AM would be successful

Selection Bias!

- even if markets are not efficient, the average performance of all investors will be same as the market return

- the market return is the weighted average of passive returns + active returns

- if index funds have the same pre-fee return as the market, than the active average investor will also have the same pre-fee return

- this is a zero sum game, the average return of all active investors before costs is necessarily going  to equal the average return of the market

- active investment is usually more expensive than passive investment so active funds, as a group, will do worse than the index funds after fees.

- no amount of trding or research will change that, some will outperform, but as a group they will underperform

1. differences in service (reporting, convenience) can be largely ruled out as an explanation

2. mutual funds must always trade on their NAV, management skills are hence not priced and investors might make a bargain by selecting an "underpriced" fund that promises superior returns

3. for that explanation to hold, there must be eviedence for persistence in performance, ie. past performance of a fund should be predictive of future performance

4. investors do not know active funds perform badly

5. investors cannot switch to other funds, because of institutional boundaries

- use style analysis

- regress fund returns on indexes representing a range of asset classes

- the regression coefficient on each index measures the funds implicit allocation to that style 

- R^2 measures return variability due to style or asset allocation 

- the remainder is due either to security selection or to market timing

= is a two step procedure to the portfolio optimization problem, combining market an investors views 

1. What does the market think?

- very difficult to beat the market

- RA, Var-Cov-Matrix, weights betrachten

2. what does the investor think

- investors may (think to9 have more information and therefore hold divergent views

- if you do not have views, you hold the market portfolio (the benchmark)

- if specific views, how confident are you for them

combine these two steps!

- should limit unwanted losses and provide an asymmetric return distribution

- portfolio insurance strategies can be classified along two dimensions

- static vs dynamic

- path dependent vs path independent

..... was found to (verschlimmern) the situation and largely failed to insure portfolios

1. stock index falls

2. initial hedge is too small

3. need to sell more

4. more price pressure

- shifts all asset into the risk-free to ensure a minimal portfolio value

- a dynamic strategy that allows to shift between stocks and bonds to ensure a minimum value

1. X% Rules

- buy (sell) currency if exchange rate has appreciated (depreciated, an Wert verlieren) by X% after last trough (peak)

2. Moving Average Cross Over Rules

- short and long period moving averages 

- buy (sell) if short moving average crosses long moving average upwards (downwards)